Banco Bilbao Viscaya Argentaria S.A. (BBVA)

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Banco Bilbao Vizcaya Argentaria, S.A. (BBVA)

Q1 2013 Earnings Call

April 26, 2013 3:30 am ET

Executives

Ángel Cano Fernández - President, Chief Operating Officer, Director, Member of Executive Committee and Member of Global Asset Allocation Committee

Tomas Blasco Sánchez

Manuel González Cid - Chief Financial Officer and Head of Finance Division

Presentation

Operator

Good morning to everyone. Welcome to this webcast presenting the BBVA Group earnings for the first quarter of 2013. The presentation and explanation behind the earnings will be given by Ángel Cano, who's the group's President and Chief Operating Officer. Then immediately afterwards, we'll have the Q&A and Manuel González Cid is here to accompany us on that, our CFO. And any questions that can't be answered during the webcast, as always, will be covered by the Investor Relations team sometime during the rest of the day.

Ángel Cano Fernández

Good morning, everyone, and welcome to this presentation of the BBVA Group earnings for the first quarter of 2013. I think it will be a good idea before I start to go over the highlights for this quarter to also go over some of the comments that we made during the presentation, for the 2012 year-end earnings when we talked about how we expected 2013 to roll out and the main tendencies we were expecting.

To start with, we talked about one concept which was, that it was going to be a year of transition, and we'd see a big change between the performance in the developing and the developed economies, and talking about Spain, we said that in Spain, we will still and we'll see this when we talk about the first quarter, we're still going to be seeing a drop in lending volumes because of the deleveraging that was going on here. And we see that in many different sectors. We also talked about nonperforming assets and we talked about this slight rise that we will be seeing in NPAs for the group as a whole but above all, that was because of the growth in NPAs in SMEs. And we said that in 2013, we'd probably see there would be more net additions coming from SMEs and above all, from very specific customers.

And the other thing we were looking at was the behavior of the main lines on the income statement in 2013 was going to gain steam as the year went by, as the impacts of the reduction in retail deposits went down and also, as wholesale funding became less costly and also, as we got the synergies from the merger between BBVA in Spain with Unnim.

And then looking at things from the U.S.A. viewpoint what we expected to see there in 2013 was that the business would continue to be very much influenced by the low interest rates that we are seeing at the moment, and we know that this environment at the end will normalize, but we're not quite sure when will it be in 2014, will it be in 2015. But in 2013, we're definitely not expecting interest rates to rise significantly in the U.S. area and we said this at the end of last year. We were expecting to see earnings again and business gaining steam and growth increasing as the year went by.

And then in the emerging economies, quite about from what we will be saying when we talk about the highlights in the quarter, we thought that there would be positive growth in Mexico and in South America which would be able to cover the inter-quarter impact of the devaluation in Venezuela, which obviously affected quarter-on-quarter earnings.

So now, we can move on to the presentation and I want to point out that we've had a positive impact on our earnings from 2 one-offs that the market knows; the sale of the pension business in Mexico which has been booked to this quarter, and then the life insurance business here in Spain. So those 2 transactions have been booked to this first quarter, so we've got high earnings because of those 2 impacts. But anyway, when we look at the main lines on the income statement quite apart from these one-offs, we are still seeing how resilient our revenues and all the other items on the income statement are giving us a very robust income statement with gross margin, gross income of EUR 5.4 billion, and that's up 3.9% year-on-year, and if we look at risks earlier on, I was saying that we're just incorporating the impact of the NPAs in SMEs here in Spain. But in general, we can say that it's in line with what we were expecting to get as of the beginning of the year.

So there's a slight worsening in the NPA ratio, which has gone up from 5.1% to 5.3% whilst coverage ratio remained about the same as what we had at the end of last year.

In capital, we're talking about a quarter with a big increase. In capital, we'll be looking at 2 things here. First of all, capital gains on the one-off transaction in Mexico and then the generation of organic capital over the quarter which led to us to generate 42 basis points over the quarter.

And then finally, liquidity. We are really shoring up liquidity in this quarter above all in the euro balance sheet, about EUR 10 billion, nearly EUR 10 billion reduction in the liquidity gap this quarter. So the highlights are that we are doing well on all of these parts of the screen. What's the most significant about what's going on? Well, we're keeping up a high level of growth revenues well supported this quarter with net trading income. Net trading income is incorporated when we are talking about the net interest income with low interest rates. So that's pretty normal and to be expected. We also incorporated capital gains from 2 one-offs, the sale of the pension business and the life insurance business here in Spain. And at the same time, we've got some adjustments which were made. First of all, because of the way that we booked, we booked China under the equity accounting method, and then the CITIC results at the year end were impacted by new regulations and that meant they had to increase their generic provisions. And so we wanted to anticipate the impact it would have up to 2016, so that will be booked to year-end accounts in 2012, and that has an impact on this quarter. We have also taken advantage to increase our provisioning, as I said before, with very specific customers, knowing exactly which books we were provisioning, and a very often due in real estate. And also, we were able to absorb the quarter-on-quarter impact of the Venezuelan devaluation between year-end last year and this first quarter.

So now looking at the main lines on the income statement. Obviously, we're seeing very resilient performance and right from the net interest income, we can see how this trickles down into the rest of the account. Once again, net interest income has grown 0.8% quarter-on-quarter, and this is clearly the outcome of the business model based on diversification which is generating recurrent earnings over time. The net interest income in the emerging markets is going up about 12%, and this tendency is leading us to get a gross income, which is also growing positively, nearly EUR 5.5 billion, growing nearly 4% quarter-on-quarter. The net interest income plus fee income which is the most recurrent business really, has also shown year-on-year growth of 0.4%. Consequently, we're continuing to see this very resilient performance of our income statement. It's the outcome, mostly diversification, that we've got in the group. We're talking here about gross income of which 58% comes from emerging economies which are growing over 9%, and 42% comes from the developed economies. If we look at it in geographic terms, Spain, is still 30% of the total gross income for the group. Mexico, is now 28%; and South America, 24% of the total. That means that very clearly, the emerging markets are the driving force behind the growth in revenue.

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